Mpac Group plc (MPAC) Earnings Call Transcript & Summary

[Audio Gap] joining us today to hear from Mpac Group who announced their half year results yesterday. We will be hearing from the management team who are going to talk us through the presentation, there will be an opportunity for Q&A at the end. If I could ask that you submit questions as we go through, then we can press straight on when we get to the end of the presentation. As a reminder, if you haven't seen this already, we did publish yesterday, and you can find the research on our website, on Mpac's website with details on forecasts. But without further ado, I will hand over to CEO, Adam.

Thank you, Hannah. So hello, I'm Adam Holland, I'm Chief Executive of Mpac Group. Some of you might remember me from our 2022 full year results call back in March and the AGM in May. But for those of you that don't, I joined Mpac in November as Chief Operating Officer, and I succeeded as Chief Exec in May. Now, I know there's a long tradition of new chief execs announcing 100-day plans, strategic reviews, often an exodus of key leaders and always downgrade of full year results in the first year. And as I set out in May, I'm not that person. I've got no intention of radically repositioning Mpac. We have a really clear strategy. We've got a significant market opportunity, and we've got a team developing really well to deliver it. And my first impressions, when I discussed them with you briefly back in March, were the strategy is really good, but we need a much greater focus on 2 things. Firstly, time with customers, understanding and addressing their issues, and we'll talk about that today. Secondly, ramping up the pace at which we deliver strategic change. And in our results, you will see the bounce in order intake and services that can be delivered as a result of doing those things. Now in July, we flashed our half year results in line with expectations, and we reconfirmed our full year forecast for 2023. We have a lot to do in the second half, but the groundwork that the team have put in place in the first half gives us the platform that we need to deliver. And the Board and I are really pleased with the progress. So what we're going to cover today, you can see on the agenda in front of you, we're going to run through what we do at Mpac, we'll talk about the investment case, we'll talk about customers, the customers we serve and our business model. Will is going to take you through our half 2 results. We will clarify and reconfirm our ambition and the strategy for the Group. And then we've got 3 case studies for you. And we've deliberately chosen to highlight people and customers. They're practical examples of the ways that we're delivering our strategy. And then we'll summarize and we'll take any questions at the end. Okay. So next chart, please. Okay. At Mpac, we build the machines that assemble and package the products that millions of people around the world depend on. And in the bottom left-hand corner of this chart, you can see some cartons going from left to right to help explain what it is we do. If we start with assembly on the left-hand side, we create machines that assemble products, products like razor-blade cartridges, nappies, lithium-ion batteries, contact lenses, interocular lenses, a whole range of different things. Moving through the cartons from left to right, you can see product handling and infeed and cartoning. These are secondary packaging activities. That's putting things like frozen pizzas into pizza boxes, ice cream bars into cartons, bags of rice, craft beer, stick packs of coffee, glucose monitoring devices, a whole range of different things. And then on the right-hand side, you can see tray forming, case packing and palletizing, that's forming the trays and the corrugated cardboard cases that these cartons go into and then sucking those onto pallets for onward distribution, and our machines do all of these things. We operate in 3 product lines. You can see the Lambert business based in the U.K., which is focused on assembly and complex automation. And then the Langen business headquartered in Mississauga in Canada and in Wijchen in the Netherlands and the Switchback business in the U.S. These businesses are involved in packaging automation. And on the top right-hand corner of the chart, you can see a pie chart splitting out the sectors that we operate in. In the first half of this year, 40% of everything we did went into the food and beverage sector and almost 40% went into the health care sector, up from the end of last year, which you might remember if you think back to our full year results from 2022. And still 5% to 10% of our revenue is going into the clean energy sector. And for us, that's an investment area for us, and we're very excited about the future. Next chart, please. So we operate in a really attractive market. I said back in March, that part of the reason why I joined the Group and what makes me so excited about the future for Mpac, we have a huge addressable market. So firstly, the food and beverage, health care and clean energy markets. They're very large, they're very resilient and they're growing. And Mpac today has a very small market share in these markets. We have a significant opportunity to grow. Our markets are attractive in a second way. Our competition is fragmented. So there are many smaller specialized and regional businesses who lack the breadth and the geographical scale of Mpac, but also some much larger competitors who'll be up to sort of GBP 1 billion, GBP 2 billion, GBP 3 million, GBP 4 billion, even GBP 5 billion turnover. And many of those larger companies have grown through acquisition of those smaller specialized businesses. And indeed, that's been part of our growth with the acquisition of the Lambert business in 2019 and the Switchback business in 2020. But our markets are attractive in a third way. The market is engineering-led, so the customer decisions are based on technical factors as well as the commercials of any particular new production line. And that means that Mpac is particularly well placed to compete. And we've shown we can compete against the largest companies in our sector very effectively because of that technical-led decision-making. And finally, the fourth aspect of our attractive markets are the barriers to entry. Every single new production line is different. And while there are common core functions to our machines and to particular lines, it's the capability and the expertise of our people to solve complex problems that our customers really value. And they do that project after project. That expertise takes years to build. And I've said a number of times this year, and I'll say it again today, Mpac really is Mpac People. Next chart, please. As well as operating in very attractive markets, and we talked about the growth opportunity that, that offers for the Group, we offer a very attractive investment proposition in 4 areas, so not just the attractive markets, but also the technical team is growing. Now if Mpac is Mpac People, we have to be able to demonstrate that we are growing the technical team at Mpac and we are. The engineering hours in the first half of this year were 28% up on the same time last year. Investment in R&D and innovation is 0.5 percentage point higher. That's a 25% increase on the internal investments that we've made in the Group in the first half of this year. We also have a very high quality of earnings. So it's an absolute delight for me to say today that order intake is up 90% in the first half of this year compared with last year. Probably, most importantly, the order book is 24% up at GBP 77.5 million, and that positions us really well for the second half of this year, is that quality of foresight that it gives us that's so important. I'm particularly delighted to have to say that service revenue is growing and particularly strongly. Our service revenues in the first half of this year were 33% of the Group revenues, and that's up from 21% in the same time last year. So a really significant change. And finally, we have a strong balance sheet. We've said before, and we keep saying it, we are a light capital growth requirement business, and we've shown it in the way that we've grown. But particularly important, in the first half of this year, we've also shown strong cash generation from the Group, positioning the Group with net cash at the half year and indeed net cash today and a net cash forecast at the end of this year, too. Next chart, please. Now, our customers range from the smallest privately-owned businesses who might be introducing automation into their factories for the first time to some of the largest blue-chip multinational companies in the world. And you can see, many of them on this chart, by no means all. In fact, just the top 3 companies on this slide have a market cap of over $1 trillion. So just think of the opportunity that, that creates for us. And our equipment sits at the very heart of what our customers do, and it sits at the heart of their operations. Our equipment makes and packages their products, the products that their revenues depend on. So it really is no exaggeration to say that we're trusted by some of the most respected companies in the world, and that creates an enormous opportunity for Mpac. Next chart, please. And the reason why we're trusted is our business model. Our business model is designed to win and retain customers. And it's the way that our people interact with those customers that does that. So it starts off in the consultation phase for us. That's the point at which our teams are engaged with our customers before they've even started to build their factory or to design a new line, think about the way that their products are designed, the way their packaging materials are designed and the way the packaging itself is designed and the design of the machine that we'll produce that for the customer. That consultation phase is very important for us, not because it drives significant revenues for the Group, but because it's the point at which we engage with customers to win new business. The bulk of our revenue comes from design, build and installation of those equipments. And then, of course, as we move into the services part of their business model in monitoring and optimize, that's the place at which we can demonstrate exceptional customer service and retain customers and win repeat business in the future. So I'm going to hand over to Will now who's going to describe a bit about our results in half 1 and how our business model is delivering performance.

Thank you, Adam. Okay. So first slide gives an overview of the financial performance in the first half of '23. We consider it reflects the really strong commercial performance and an improvement in the financials compared to the prior half year. But to start with order intake, and the order intake increased significantly by more than 90% to GBP 62.4 million over the prior half year with a significant proportion of that order intake coming from new accounts for Mpac. By sector, the health care sector grew significantly in the first half of the year. Almost 50% of that order intake originated from customers in that particular vertical, but we saw growth across all verticals compared to the prior half year. And regionally, the Americas region performed particularly strongly in the first half and approximately 60% of our order intake originated from customers in the Americas. In addition to that, looking forward, we have a strong prospect pipeline and that remains robust across all regions and gives us confidence over the profile of order intake anticipated throughout the second half of the year. Moving on to revenue and order book. Revenue grew by 4.3% to GBP 52.8 million. And we'll see on the next slide, the split between OE and service and Adam has mentioned that service revenue was a real success story in the first half of the year. The June order book, which is a product clearly of the order intake in revenue, increased by 23% to GBP 77.5 million, really strong profile over first half and gives us a lot of confidence over second half revenue, and that order book extends into revenue for 2024 and beyond. If we turn to margins and profitability, the gross margins in the first half, we're showing development margins increased to 23.9%. It's on the road to recovery. Margins are still impacted in the first half of the year by 3 other factors. First one is the trade out of lower-margin projects, which were impacted by supply chain challenges in 2022. In addition, we had a large number of machines in build at the end of last year, which we installed and commissioned in the first half of this year. That supported the growth to an extent in the service revenue, but carries a slightly different margin profile than typical Mpac OE projects, and that was another factor impacting margin in the first half. And then finally, we [Audio Gap] the customer qualification plants lying for [indiscernible]. Those 3 factors were discrete in respect to the first half of the year, and we don't anticipate similar headwinds to the second half of the year. Moving down to underlying operating profit, thus revenue development and the development of margins has dropped through to an increase in underlying operating profit. We've shown profitability 83% above the prior half year to GBP 2.2 million from GBP 1.2 million in the prior half year. And in terms of cash and working capital, it's another strong development for the Group. So last year, there was an expansion of working capital impacted mainly by disruption to supply chains and longer lead times and the availability of parts that resulted in additional projects in build at the end of the last year, and we talked about an expansion of working capital at the end of the year. And as anticipated and as we advised, that unwind has been strong in the first half of the year and has supported a return to a net cash position from a net debt of GBP 4.7 million in -- at the previous year-end. Next slide, please. So 2 elements on this slide. I'll start on the right-hand side, the split of OE and service revenues. So clearly, really strong service revenue development. As I mentioned, an element of that is associated with the installation and commissioning of that bow wave of open projects from the prior year. But even net of that, we're showing strong development and growth in the service business, which is clearly really important to the strategic development of Mpac. In terms of OE revenue, well, we have a finite resource and some of that resource, which would otherwise have been used to generate OE revenue was used to support that installation and commissioning of OE projects. So that goes some way to explain the balance of OE to service revenue in the first half of the year. In terms of gross profit, gross profit from that revenue split, GBP 12.6 million, up from GBP 10.7 million in the prior year, and that drops through to an underlying operating margin of 4.2%, which is a return to a normalized level of profitability, albeit we have communicated and the forecast indicates that profitability will be second half loaded. That second half weighting is underpinned by that good quality and good mix of the order book. We spoke about previously, the order book is of GBP 77.5 million, it is significantly above the prior half year. And we've got a lot of transparency to see the margin in that order book to support the forecast between the markets for the full year. Looking below operating profit in terms of non-underlying items. So this includes pension admin costs of GBP 400,000; amortization of acquired intangibles, GBP 800,000; and restructuring costs of GBP 1.2 million. And to give some more detail on what's included within the restructuring costs, there's 2 main aspects. The first one, there was an exercise around reshaping of the business in the U.K. in Tadcaster. Part of that was taking out some internal manufacturing capacity and moving that to outsourced. At the same time, the expansion of our engineering base, so to stack up the technical competencies of the site and the other element related to the collapse of the fee of [ overall ] into the CEO [indiscernible] that took place in the first half of the year. So in both respects, with discrete actions, which has been fully costed into the first half, and we don't anticipate there'll be further restructuring costs in the second half of the year. Next slide, please, Hannah. So it's the balance sheet. So it's consolidated balance sheet here. I mentioned within noncurrent assets, it's tangible assets, intangible fixed assets and the U.K. IAS 19 pension scheme balance. So the pension assets on an IAS 19 basis has increased mainly on the back of the increase in discount rates in the first half of the year, up by 0.7% where probably more interest into this audience is movement in current assets and current liabilities. So we see an increase in inventory. This very much reflects a part from material ordering profile in preparation for delivery of that inflated order book, higher order book that we carry and the project execution and spare parts order book, which has increased over the second half of the year. We also are still carrying a higher level of inventory associated with those critical electronic components, control systems, which were in short supply last year. And that is another shield to ensure that we can deliver projects on time to our customers. Trade and other receivables decreased by GBP 3.1 million, pretty much all of that associated with the reduction in trade debtors and trade and other payables increased in the first half of the year, and that's primarily relating to contract liabilities and specifically an increase in customer deposit balances. So this ties in with the increased order intake profile that we had in the first half of the year. In terms of borrowings, we can see our borrowings have reduced from GBP 8 million to GBP 5 million as we repay the drawdown of the RCF from last year. And that combination of the reduction in working capital across contract assets, contract liabilities and inventory, the combined balance really underpins that reduction or the increase in net cash to GBP 2.2 million from GBP 4.7 million net debt in the prior year-end. Next slide, please, Hannah. So here, we're showing the cash bridge, so this is gross cash. We started the year with gross cash of GBP 4.2 million. The EBITDA, I've spoken about the drivers there, it was GBP 2.4 million in the first half. Strong reduction in working capital supported the cash balance by GBP 7.3 million. There's ongoing contributions or ongoing commitments to the U.K. defined benefit pension scheme, GBP 900,000, and capital additions. So our capital additions in the first half of the year was split relatively evenly between fixed asset additions, primarily for rental assets with a demand from customers in the market immediately and some new product development. There, we have the GBP 3 million reduction in borrowings in the first half and tax and other items, which takes us back to closing cash at the half year of GBP 8.1 million. So to summarize the financials for the first half, really strong order intake, but most importantly, a very strong order book to go into the second half of the year and the strong margin mix within that order book to support the second half profitability, which we are anticipating and aligns to the forecasts in the markets. We still have access to the GBP 20 million RCF, we have GBP 5 million drawdown, but there's GBP 15 million still available. Accepting we have working capital balance in half year, but the Group is still capital-light by nature, and we have access to sufficient capital to be able to meet our long-term strategic goals. I'll pass back to Adam.

Thank you, Will. And when we met our shareholders and in particular, some of our non-holders in March, you asked us to set out our ambitions for the Group very clearly. And the chart in front of you is us responding to that request. Our ambition is very clear. There are 2 things: firstly, build scale, double-digit percentage revenue growth; and secondly, driving returns to better than 10% operational return on sales and maintaining them there. Now that growth on the left-hand side comes from 3 factors. Firstly, there's innovation, and that's the key to winning market share. We're going to touch on innovation in a couple of charts time. The second piece is broadening our customer base. Now that's really important to our shareholders because it's the key to addressing some of the lumpiness in our business. You've seen that. In a business of our size, GBP 100 million turnover business, winning orders that are GBP 1 million, GBP 2 million, GBP 3 million at a time, a business with that size, our size today is, by its nature, lumpy if you've seen our results: scales, smooths, lumps. So it's important we grow. It's also important for our current customers that we broaden our customer base because we need to fill in the values in our factories. Keeping our engineers engaged and well utilized is the key to retaining and developing those key skill sets that our existing customers depend on. So it's a good thing for shareholders. It's a good thing for our current customers. And of course, it's a good thing for those new customers that we win along the way. And the third aspect of growth is continuing to develop our customer service. That's the key to retaining long-term customer relationships, repeat business, and of course, it supports the operational returns that our shareholders expect without becoming uncompetitive on our original equipment business. Now achieving 10% return on sales goes hand-in-hand with scale. It depends on 3 things. It depends on delivering our projects efficiently, continuing to invest in our people, and scaling up, spreading our central costs over a higher revenue base. I'm going to turn to the next slide and talk through our strategy, which sets out how we're delivering that today. There are 5 aspects to our strategy and it hasn't changed. I'm going to talk through each of them in turn and just give you an example of some of the tangible things that we've done in the first half of this year to deliver on that strategy. The first is going for growth. We've made some really good progress in winning new customers in our target sectors of food and beverage, health care, clean energy. But most importantly, I can give you a number now, 15% to 20% of our half 1 order intake came from new customers and that's a fantastic start. We also signed a framework agreement with one of those top 3 suppliers, [ I talked to ] customers that I mentioned previously in an earlier chart, and I can't give you, for confidentiality reasons, the name of that customer, but it's a very significant step for us, and we're very excited about what that means for the future of our business. And finally, the Lambert business, in particular, has shown excellent progress in winning new orders and developing new prospects. And of course, as an acquired business within the Mpac Group, that is so important that we can demonstrate what is possible with an acquired business. In customer service, we made excellent progress developing our service capacity and particularly in the Americas. We've got a case study on that to come, so I won't touch on that in any more detail now. In operational excellence, the deployment of the Mpac ERP system and our blueprint into the Cleveland side is a really important milestone for us achieved just before the half year this year, and we've made good progress to rolling out projects online at all of our sites. Innovation is very easy to get excited about right now. On Monday next week, on the West Coast of the U.S., the PACK EXPO show, it's the most important trade show in the U.S. in our sector, starts. And at that show, we will announce the launch of our first top load robotic cartoner. Now we've done many projects in that space before, but we've never launched a product to do that activity. And the innovation team have achieved that from a standing start 6 months ago. So it shows what can be achieved with a little bit of pace in the innovation space. And finally, people. We're going to touch on that on the next slide. So let's move on. We have made good progress developing the team. I think I've said that already, but I'm going to give you 4 examples here. These are just 4 examples from the leadership team. There are many, many more at all levels within the Group. Kevin, you can see on the top left-hand corner of your chart, joined us in April to lead operations in Canada. Now Kevin brings with him outstanding track record in transforming businesses. Cindy joined us in June to lead supply chain in the Americas. It's a new role for Mpac and Cindy brings to the group an incredible track record in automotive supply chains and packaging supply chains. David, on the bottom right-hand corner of your chart, joined us in April in the U.K. as Managing Director. David has a phenomenal experience leading businesses and driving growth. And in the top right-hand corner of the chart, you can see Tammy. Tammy joined us just last week as Group HR Director. It's a new role for Mpac and Tammy's experience in HR and operations is really important as we deliver our people strategy across the Group. Now I'm highlighting these new leaders because of the impact that they are already having. We knew from their track records what they were capable of, but it's an absolute delight for me to see the impact that they're having on the Group already in action today. I've said Mpac is Mpac People. So developing Mpac is developing Mpac People. Okay. Our second case study is in customer service. And I visited the Mars business in the U.S. in April this year to see 5 lines that Mpac had installed into that facility, where we package Mars Ice Cream and Snickers Ice Cream and Twix Ice Cream and M&Ms and Dove, various different sizes of ice cream bar, all operating at tremendous speeds, but not fast enough. The line had multiple problems. Production couldn't keep pace with the demand for ice cream. I'm a father of 2 teenagers and I know exactly what that feels like. The response from the Mpac team has been absolutely tremendous. We saw a significant step-up in support, both from the local field service teams in the U.S. and also the design and engineering teams at Mpac in Europe. We worked through upgrades, improvements, changes in settings, design changes, all of it done in harmony with the Mars operations team, who, of course, in the summer, couldn't support a single hour of unplanned downtime in an ice cream factory. And we've collaborated with machine builders, upstream and downstream of us, in the flow line and solved problems collaboratively that couldn't have been done on our own. Now there is still more to do, including, I'm delighted to say, the production of a sixth production line, 4 miles now ordered in recent weeks, but the pace and direction shows what can be done by focusing relentlessly on customer service. Next chart, please. Now I know many of you will be interested in our progress in clean energy. And I'd like to cover the work that we're doing with FREYR to implement 24M technologies in semi-solid lithium-ion battery cell assembly. And we've continued to work very closely with FREYR on CQP, the customer qualification plant commissioning. And we're deep into the critical phase of that on site now. I was lucky enough just a couple of weeks ago on the 22nd of August to be with the FREYR team in Mo i Rana in Norway, walking the line and understanding the progress that we've made and the work ahead of us. We are now working 3 shifts a day, 24 hours a day, 6 days a week, and we're on track. I've spent some time with the FREYR Chief Exec last week, and I asked him, "What would you like us to say to our investors about our progress with FREYR? " And he said this," Tell them exactly where you are." What we're doing together is really, really hard. But we're on track. We're on track to deliver the CQP and demonstrate that we can produce a fully automated cell production by the quarter 4 of this year. Now 3 months ago, we announced that we started work with FREYR on the pre-engineering of Giga America as well. That's defining the scope of work that would go into a new Giga America factory. And in June this year, you may have noticed that FREYR held a Capital Markets Day, and they announced the time lines, not just for Giga America, but also for the Giga Arctic facility too. That's really, really important for me to say at this stage. And I can't be definitive on the quantum, the timing or the scoping of what that means for Mpac at this point. Until FREYR are in a position to place purchase orders with us for production lines, I'm not going to get into speculation. But it is absolutely clear how important it is that we deliver CQP successfully, and we are laser-focused on doing that successfully this year, and we're on track. Next chart, please. Okay. I'm going to summarize. And I'd like to say 5 things. I'm not going to talk through everything on this chart. There are 5 takeaways for me about the first half. The first is that we've built a really strong order book. That's so important as we go into the second half of this year for us to deliver our full year forecast that we have that order book, and we do. The second, we've delivered good cash generation, and you've heard the numbers from Will earlier in this presentation. Thirdly, we've shown strong services growth, achieving 33% of our revenue from services in the first half. Fourth, we've made good progress on our strategic focus areas and in developing our leadership team. And finally, fifthly, we've made good progress, too, in developing our pipeline for future acquisitions. Now looking ahead, we've positioned the Group to deliver the full year forecast this year and to deliver further growth in 2024. In the spirit of about 3 words, that growth is all about 3 things: scale and better margins. We undoubtedly have a lot to do in the second half. But in summary, we are on track, good first half. And I think we'll pause and take some questions now from the poll, please.

[Operator Instructions] Let's begin. You touched during the presentation on the success of Lambert. Can I ask what are the factors behind its increasing success over the last 6 months?

Yes. So when I joined the group in November last year, one of my observations was that we've become incredibly focused on the work we needed to do to support FREYR and I think that's really good. I think there's a fantastic opportunity ahead of us there. But to some extent, the Lambert business had lost its way a little bit and forgotten the core Lambert business that existed beneath that and gave rise to that opportunity. And I think part of what we've done there is simply a refocusing to make sure that the Lambert business also is focused on supporting the health care and food and beverage sectors and the opportunities we see in automation of the basic Lambert capability into those sectors, too. The sales team have done a fantastic job of winning orders in those sectors. It's historically been the core of the Lambert business and it's absolutely firmly the basis of our revenue growth this year. I'm not going to detract from the opportunity we have with FREYR. We're very excited about the opportunities with FREYR with 24M, with other licensees and other battery technologies, but we're very conscious. Today, it's just 5% to 10% of our Group revenues and 95% of our business is around packaging and automation outside of the clean energy space today. And it's that refocusing, making sure that we've got that core business and the opportunities there [ currently ] and the size of the team that has made the difference.

Will, one for you. We've obviously seen a shift in the working capital which is, I'm sure, welcome to everyone on the call. Can I ask, is this here to stay? Where do you see the working capital? Will there be such big fluctuations going forward?

Yes. Thanks. So historically, Mpac had operated with a fairly balanced neutral working capital position. So the impact of the supply chain disruption has resulted, in 2022, in extended build times for Mpac. Whilst we've got more security over delivery dates from vendors now, we haven't seen a significant reduction in the lead time problem. So hence, we are still running with a level of working capital now above the historic levels. I think we are in a place now where there's less volatility going forward. But for the rest of this year, we're not anticipating a further significant unwind of working capital from where we were at the half year. And that won't really kick in until our build time supported by lead times from suppliers start to come back towards us again.

Okay. Thank you. You touched on acquisitions. Can you talk us through what your priorities are for these acquisitions?

Yes. Thank you. I'm going to start with scale. So I said that our priorities are scale and better margins, but it's not scale for the sake of scale alone. We're not just going to go out and make acquisitions and bolt-on businesses that don't really fit with the rest of the Group. I'm really focused and our whole leadership team are on strategic aspects of what we're trying to achieve here. And that absolutely is about building out the full and fuller lines within factories that our customers operate in. You heard me describe in the example of Mars, for example, us working collaboratively with machine builders, upstream and downstream of us, on that particular flow line. And that absolutely is what we're focused on doing. So it's about thinking about how we can develop our fuller lines for Mpac customers in the future. Now part of that is looking upstream of us. We have a very, very capable secondary packaging and end-of-line business, but we don't have anything to offer of significance in the primary packaging, and so that's the first piece of packaging that happens in a flow line. The Mars Ice Creams that come down the line that's sort of already flow wrapped, the stick packs of coffee that come -- we put into cartons are already granules inside stick pack and so on. So we're focused on thinking about how we can extend into primary packaging and the difference we can make there. And in secondary packaging, we're by no means finished there either. So there's an awful lot more to do to broaden out our business and offer that more [ flow ] to our customers in those spaces. I will say as well that we are absolutely focused on the market sectors that we described in this presentation. So food and beverage, health care and clean energy, that is absolutely where our focus is. We're not looking to broaden out beyond that. We've got huge opportunity in those sectors alone, and we don't need to do more than that to grow the Group. And I think some of our investors will be interested in the geographical aspects of where we're looking. We're a business based in 4 sites today in North America and Europe effectively. And that very much is the core of our manufacturing capabilities today. The majority of our customers, by no means all of them, are in those regions as well. And that -- those regional focuses remain the focus of our acquisition interest too. So I guess to summarize, it's about strategic acquisitions that help us expand to a fuller line business and build scale for the Group.

Thank you. One here that I've had through an e-mail around service revenues that showed significant growth during the first half. What is the state for additional significant growth in future years?

Yes. So we set out a very clear target earlier this year, and I think it's been stable for many years that we were going to achieve 30% of our revenue from services. And so it's not [ just right ] to say that we've achieved 33% of our revenue from services in the first half of this year. And it would be no surprise for people to hear that, that caused a considerable debate amongst the leadership team. Should we now reset our target, having achieved 33%? Should we ratchet it up to 40% or 50% or 60% as a target for the future? And my view and the view of the leadership team at the end of that debate, for sure, is that we are not going to do that. I think businesses that do that and aim for 40%, 50%, 60% of the revenue from services are not doing enough to exploit the opportunities in growing their original equipment businesses and increasing that installed base. So it's really, really important for us that we don't do that. We're into long-term growth. Of course, we want to support our customers and see healthy returns from the services business. And tram lines around a 30% mark make good sense. If we're 27%, 33%, I'm not going to worry about, because within a sensible tram line around 30%. And so that book is going to remain our target to have 30% of our revenues coming from services in future years and to drive OE growth to ensure that, that remains the case.

What -- who do you see as your competition?

That's interesting. We've got -- I mean, when I said the competition is fragmented, I probably should also say there's a significant number of competitors out there. If you go -- if you look at companies of our size, sort of between GBP 50 million turnover and perhaps GBP 250 million turnover, there are probably 20, 30 companies out there that operate at that size with the geographical scale of Mpac. Many of them have a particular specialist, they're either focused entirely in pharmaceuticals or entirely in health care or something. But we -- there are a number of companies of that scale there. If you go up to the -- if you go down to the very small specialist and regional companies I described, there are hundreds of very small automation businesses out there operating often within a very narrow geographical focus for their customer base. And so it's pretty hard to answer the question on that because we -- I'll be listing 100 companies. It will take us a long time. If you go right to the very top end of the spectrum, it's probably easier. We know that the companies that have kind of GBP 1 billion-plus scale are easier to call out. You've got [indiscernible] and others, it would be fairly easy to pick up data from our industry trade body, the PPMI. PPMI have some very good data available to our investors to understand the markets that we operate in and the competitors that we compete against. And I am not going to spend any time publicizing the competitors that we compete with every day on a call like this today.

Right. Well, that is it for the questions today. So thank you all for attending. Thank you to you both for your time on this presentation. A reminder, when we switch off, there will be some feedback. So please fill it and it'll be much appreciated. Otherwise, we look forward to see you both in 6 months' time.

Thank you, Hannah. Thank you all.

Bye-bye.